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ERISA Litigation: Courts split on class action waivers and arbitration provisions

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Courts have at length discussed the enforceability of mandatory provisions in Employee Retirement Income Security Act (ERISA). These provisions concern with class action waivers and arbitration provisions. Various approaches of Courts in determining the enforceability of those provisions in ERISA litigation is discussed below:

1. General Contract Principles – recent decisions of Sixth and Seventh Circuits in ERISA-based litigations engage in an individualized state law analysis as to whether plan participant(s) can be compelled to arbitrate their ERISA breach of fiduciary duty claims.

2. Lack of consideration – in the case of Hensiek v Board of Directors of Casino Queen Holding Co., the U.S. District Court for Southern District of Illinois denied compulsory arbitration of former plan participants’ breach claims after applying basic
principles of state contract law which proved that the amendment adding a mandatory arbitration provision was invalid as it lacked basic consideration.

3. Lack of Agreement between the ESOP and the Company – the U.S. District Court for Southern District of Ohio in the case of Hawkins v Cintas Corp denied compulsory arbitration as it discovered that there was no agreement between the ESOP and the
company to arbitrate plan disputes.

4. Plan Consent – reliance has been laid on plan documents and employee-related documents in determining the enforcement of class action waiver and/or arbitration provision against a plan participant by various courts. The U.S. Court of Appeals for the Ninth Circuit in Donman v Charles Schwab Corp, concluded that both plan and participant were bound by plan’s arbitration provision and held, “[a] plan participant agrees to be bound by a provision in the plan document when he participates in the plan while the proviso is in effect”

5. Consistent with ERISA – courts have also pondered upon the consistency of class action waivers with ERISA. A divided U.S. Court of Appeals for the Second Circuit in the case of Cooper v Ruane Cunniff & Goldfarb, Inc, concluded that an arbitration
agreement in the employee handbook did not encompass ERISA breach of fiduciary duty claims.

Lack of clear directions from Supreme Court or legislative courts has given space to the district and circuits court of appeal to continuously create uncertainty regarding the enforceability of class action waivers and/or arbitrations provisions in plan or employee- related documents for ERISA-based litigation.